1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 CONNIE SCHWENDEMAN, Case No. 18-cv-07641-BLF
9 Plaintiff, ORDER GRANTING DEFENDANTS’ 10 v. MOTION TO COMPEL ARBITRATION; AND STAYING 11 HEALTH CAROUSEL, LLC and HEALTH ACTION CAROUSEL TRAVEL NETWORK, LLC, 12 [Re: ECF 19] Defendants. 13
14 15 Plaintiff Connie Schwendeman asserts a single claim under California’s Private Attorneys 16 General Act (“PAGA”) against her former employers, Defendants Health Carousel, LLC and 17 Health Carousel Travel Network, LLC (collectively, “Health Carousel”). Health Carousel has 18 filed a motion to compel arbitration and dismiss the action. 19 Having considered the parties’ briefs and supplemental briefs, the relevant legal 20 authorities, and the oral argument of counsel, the Court GRANTS the motion to compel 21 arbitration. However, the Court STAYS the action pending completion of arbitration rather than 22 dismissing it as requested by Health Carousel. 23 I. INTRODUCTION 24 Health Carousel provides healthcare staffing for temporary assignments at medical 25 facilities across the United States. Dalton Decl. ¶ 1-2, ECF 19-1. Schwendeman, a registered 26 nurse, began working for Health Carousel in 2017, when she was placed at Lucile Packard 27 Children’s Hospital Stanford in Palo Alto, California. Id. ¶ 3. Schwendeman was employed by 1 17. Prior to starting employment, Schwendeman was provided with Health Carousel’s standard 2 new-hire paperwork via an online portal. Id. ¶ 4. The new-hire paperwork included a “Mutual 3 Agreement to Arbitrate Claims” (“Agreement”), a five-page stand-alone document that requires 4 binding arbitration of certain disputes and waives the right to bring class or collective claims. Id. ¶ 5 4 & Exh. 1 (Agreement). Execution of the Agreement is optional for Health Carousel employees 6 pursuant to a section titled “An Employee’s Right to Opt Out Of Arbitration,” which states 7 “Arbitration is not a mandatory condition of employment at the Company, and therefore you may 8 submit a statement notifying the Company that you wish to opt out and not be subject to this 9 Agreement.” Agreement at 4. The same section of the Agreement states that “[a]n employee’s 10 decision to be bound or not bound by this Agreement is completely voluntary.” Id. 11 Schwendeman electronically signed the Agreement on July 6, 2017 and she never opted out of the 12 Agreement. Id. ¶ 4 & Exh 1 (Agreement). 13 Schwendeman filed the complaint in this action on December 19, 2018, asserting putative 14 class and collective claims under California law and the Fair Labor Standards Act. See Compl., 15 ECF 1. On January 8, 2019, Health Carousel’s counsel advised Schwendeman’s counsel that the 16 parties had signed the Agreement. See Joint Stipulation at 2, ECF 15. The parties thereafter 17 stipulated to dismissal of all class and collective claims without prejudice, and to amendment of 18 the complaint to add a PAGA claim. See id. Schwendeman filed the operative first amended 19 complaint (“FAC”) on March 11, 2019, asserting a single claim under PAGA. See FAC, ECF 17. 20 Schwendeman alleges that Health Carousel engages in numerous practices that violate the 21 California Labor Code. For example, she alleges that Health Carousel provides its traveling 22 employees with stipends for housing, meals, and incidentals, but does not include the value of 23 those stipends in the regular rate of pay when calculating overtime and double time. See FAC ¶¶ 24 11-17. She also alleges that Health Carousel does not include certain non-discretionary bonus 25 remuneration in the regular rate of pay when calculating overtime and double time, and that wage 26 statements inaccurately show overtime and double time as paid at the base hourly rate. See FAC 27 ¶¶ 19-20. Schwendeman seeks recovery of civil penalties for these Labor Code violations on 1 The FAC’s prayer indicates that the civil penalties sought under PAGA include “the 2 underpaid wages recoverable through Labor Code section 558 and the penalties imposed by Labor 3 Code section 203 recoverable through Labor Code section 1197.1, as well as the amounts 4 recoverable pursuant to Labor Code section 2699(f).” FAC at 7 (Prayer). On September 12, 5 2019, the California Supreme Court held that “unpaid wages are not recoverable as civil penalties 6 under the PAGA.” ZB, N.A. v. Superior Court of San Diego Cty., 8 Cal. 5th 175, 193 (2019). The 7 parties thereafter stipulated that “Plaintiff’s prayer for ‘unpaid wages recoverable through Labor 8 Code section 558 and the penalties imposed by Labor Code section 203 recoverable through Labor 9 Code section 1197.1’ is stricken from the First Amended Complaint.” Joint Stipulation and Order 10 at 3, ECF 29. As a result, the FAC’s prayer for civil penalties is limited to those available under 11 California Labor Code § 2699(f). 12 Health Carousel contends that the PAGA claim is subject to binding arbitration under the 13 Agreement, and it moves to compel arbitration and dismiss this action. In the course of briefing 14 and arguing the motion to compel, a dispute arose as to which aspects of the motion to compel 15 properly are presented to the Court and which are reserved for the arbitrator. The Agreement 16 delegates to the arbitrator “exclusive authority to resolve any dispute relating to the interpretation, 17 applicability, enforceability or formation of this Agreement.” Dalton Decl. Exh. 1 (Agreement) at 18 1. While the parties agree that certain arguments presented in the briefing fall within this 19 delegation clause, Schwendeman asserts that Health Carousel has waived the right to have the 20 arbitrator resolve those arguments. Health Carousel denies that it has waived its right to enforce 21 the delegation clause. At the Court’s requested, the parties submitted supplemental briefing on the 22 waiver issue. 23 II. LEGAL STANDARD 24 The Federal Arbitration Act (“FAA”) applies to arbitration agreements affecting interstate 25 commerce. 9 U.S.C. §§ 1 et seq. When it applies, the FAA preempts state law rules that conflict 26 with its provisions, as well as “state-law rules that stand as an obstacle to the accomplishment of 27 the FAA’s objectives.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341-43 (2011). Under 1 law or in equity for the revocation of any contract.’” Newton v. Am. Debt Servs., Inc., 549 Fed. 2 App’x. 692, 693 (9th Cir. 2013) (quoting 9 U.S.C. § 2). 3 “Generally, in deciding whether to compel arbitration, a court must determine two 4 ‘gateway’ issues: (1) whether there is an agreement to arbitrate between the parties; and (2) 5 whether the agreement covers the dispute.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 6 2015). “If the response is affirmative on both counts, then the Act requires the court to enforce the 7 arbitration agreement in accordance with its terms.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 8 207 F.3d 1126, 1130 (9th Cir. 2000). 9 Although these gateway issues generally are for the court to decide, they “can be expressly 10 delegated to the arbitrator where the parties clearly and unmistakably provide otherwise.” 11 Brennan, 796 F.3d at 1130. For example, the Supreme Court has “recognized that parties can 12 agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to 13 arbitrate or whether their agreement covers a particular controversy.” Rent-A-Ctr., W., Inc. v. 14 Jackson, 561 U.S. 63, 68-69 (2010). “When the parties’ contract delegates the arbitrability 15 question to an arbitrator, a court may not override the contract.” Henry Schein, Inc. v. Archer & 16 White Sales, Inc., 139 S. Ct. 524, 529 (2019). “In those circumstances, a court possesses no power 17 to decide the arbitrability issue.” Id. “That is true even if the court thinks that the argument that 18 the arbitration agreement applies to a particular dispute is wholly groundless.” Id. 19 However, “[t]he right to arbitration, like other contractual rights, can be waived.” Martin 20 v. Yasuda, 829 F.3d 1118, 1124 (9th Cir. 2016). “A determination of whether the right to compel 21 arbitration has been waived must be conducted in light of the strong federal policy favoring 22 enforcement of arbitration agreements.” Id. (internal quotation marks and citation omitted). 23 “Because waiver of the right to arbitration is disfavored, any party arguing waiver of arbitration 24 bears a heavy burden of proof.” Id. (internal quotation marks and citation omitted). “As such, a 25 party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge of an 26 existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice 27 to the party opposing arbitration resulting from such inconsistent acts.” Id. (internal quotation 1 III. DISCUSSION 2 A. Agreement 3 The Agreement provides for arbitration of “all claims or controversies, past, present or 4 future, including without limitation, claims arising out of or related to my application for 5 employment, assignment/employment, and/or the termination of my assignment/employment that 6 the Company may have against me or that I may have against the Company. . . .” Agreement at 1. 7 The Agreement specifies that it encompasses “claims for wages or other compensation due . . . and 8 claims for violation of any federal, state or other governmental law, statute, regulation, or 9 ordinance, except claims excluded in the subsection of this Agreement entitled ‘Claims Not 10 Covered By The Agreement.” Id. The subsection “Claims Not Covered By The Agreement” 11 excludes certain types of claims, including claims for workers’ compensation benefits, state 12 disability insurance benefits, and unemployment compensation, as well as claims brought in small 13 claims court. Id. The Agreement also waives the right to assert a class or collective action. Id. at 14 2. The Agreement does not waive the right to assert a representative PAGA claim. See generally 15 Agreement. 16 The Agreement contains a delegation clause stating in relevant part that: “The Arbitrator, 17 and not any federal, state, or local court or agency, shall have exclusive authority to resolve any 18 dispute relating to the interpretation, applicability, enforceability or formation of this Agreement 19 including, but not limited to any claim that all or any part of this Agreement is void or voidable.” 20 Dalton Decl. Exh. 1 (Agreement) at 1 (italics added). 21 In Rent-A-Ctr., the Supreme Court held that identical language in a freestanding arbitration 22 agreement was sufficient to delegate to the arbitrator all questions of arbitrability, including the 23 plaintiff’s contention that the arbitration agreement was unenforceable as unconscionable. See 24 Rent-A-Ctr., 561 U.S. at 66, 72-74. The Supreme Court held that had the plaintiff specifically 25 challenged the validity of the delegation clause, as opposed to the validity of the arbitration 26 agreement as a whole, the district court would have been required to consider the challenge before 27 enforcing the delegation clause. See id. at 71. However, because the plaintiff did not challenge 1 to the validity of the Agreement as a whole for the arbitrator.” See id. at 72. 2 Applying Rent-A-Ctr., this Court concludes that the delegation clause in the parties’ 3 Agreement delegates to the arbitrator all questions of arbitrability, including whether the parties 4 have agreed to arbitrate and whether the Agreement covers a particular controversy. 5 B. Waiver 6 At the hearing, Schwendeman’s counsel “agree[d] that the arbitration agreement would 7 satisfy the Supreme Court’s standards for delegating the arbitrability determination.” Hrg. Tr. 8 7:15-17. However, counsel asserted that Health Carousel waived its right to enforce the 9 delegation clause through its litigation conduct, specifically, through its failure to invoke the 10 delegation clause in its opening brief. Id. 7:19-25. Health Carousel’s counsel disputed the 11 assertion of waiver, stating that Health Carousel submitted the Agreement with its opening brief, 12 and that when Schwendeman raised contract interpretation issues in her opposition, Health 13 Carousel appropriately raised the delegation clause in its reply. Id. 12:12-13:1. The Court 14 requested and received supplemental briefing on the waiver issue. See Suppl. Briefs, ECF 32, 35. 15 As discussed above, “a party seeking to prove waiver of a right to arbitration must 16 demonstrate: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with 17 that existing right; and (3) prejudice to the party opposing arbitration resulting from such 18 inconsistent acts.” Martin, 829 F.3d at 1124 (internal quotation marks, citation, and alteration 19 omitted). Because there is a strong federal policy favoring enforcement of arbitration agreements, 20 the party asserted waiver “bears a heavy burden of proof.” Id. (internal quotation marks and 21 citation omitted). 22 Waiver is to be decided by the court, absent an express delegation of authority to the 23 arbitrator to decide the issue of waiver. See Martin, 829 F.3d at 1118; Armstrong v. Michaels 24 Stores, Inc., No. 17-CV-06540-LHK, 2018 WL 6505997, at *9 (N.D. Cal. Dec. 11, 2018). Neither 25 party contends that the Agreement in the present case delegates the issue of waiver to the 26 arbitrator, and the Court concludes that it does not. The Court therefore addresses 27 Schwendeman’s waiver argument, as follows. 1 right to compel arbitration, as it filed the present motion to compel arbitration along with a copy of 2 the Agreement. The Agreement contains a clear delegation clause. Schwendeman’s waiver 3 argument thus turns on whether she can show that Health Carousel acted inconsistently with its 4 right to enforce the delegation clause, and that she suffered resulting prejudice. 5 Health Carousel’s opening brief did not request that questions of arbitrability be referred to 6 the arbitrator. Instead, Health Carousel asked the Court to determine that the parties had entered 7 into a valid and binding arbitration agreement which encompasses the PAGA claim. See Motion, 8 ECF 19. Health Carousel submitted the signed Agreement, argued that the Agreement is valid and 9 enforceable, and asserted that the PAGA claim falls within scope of the claims covered by the 10 Agreement. See id. at 5-9. 11 Schwendeman advanced three arguments in her opposition brief as to why Health Carousel 12 did not satisfy the gateway requirements. First, she argued that no valid agreement to arbitrate 13 exists, because the state of California is the real party in interest with respect to the PAGA claim 14 and Schwendeman lacked authority to bind the state when she entered into the Agreement. See 15 Opp. at 1, ECF 25. Second, she argued that the Agreement does not encompass the PAGA claim. 16 See id. And finally, she argued that the Agreement restricts the arbitrator to awarding “individual 17 capacity” remedies, and thus the arbitrator could not award remedies on a representative basis as 18 sought in the PAGA claim. See id. 19 In its reply brief, Health Carousel addressed Schwendeman’s first argument on the merits, 20 contending that her execution of the Agreement is binding as to the PAGA claim. Health Carousel 21 asserted that Schwendeman’s second and third arguments raised issues of contract interpretation 22 that properly should be decided by the arbitrator under the Agreement’s delegation clause, but it 23 also addressed the second and third arguments on the merits. See Reply at 1-5, ECF 26. 24 Nowhere in this course of conduct did Health Carousel assert that the Agreement’s 25 validity, and in particular Schwendeman’s authority to agree to arbitrate the PAGA claim, should 26 be reserved for the arbitrator. Both parties appear to assume that this issue should be determined 27 by the Court. Accordingly, although this Court likely would find the issue to be within the scope 1 reserved for the arbitrator. Absent notice to Schwendeman that the issue might be reserved to the 2 arbitrator for decision, and an opportunity to argue against such reservation, compelling arbitration 3 of this issue would prejudice Schwendeman. The Court therefore decides this issue, below. 4 However, the Court finds that Health Carousel has not acted inconsistently with its right to 5 have the arbitrator determine the scope of the Agreement, and in particular the contract 6 interpretation issues raised by Schwendeman in her opposition. It is true that Health Carousel did 7 not simply identify the Agreement in its opening brief and request that arbitrability of the PAGA 8 claim be referred to the arbitrator. However, immediately upon Schwendeman’s assertion of 9 specific arguments going to the scope of the Agreement, Health Carousel contended in its reply 10 that those arguments properly had been delegated to the arbitrator. None of the cases cited by 11 Schwendeman found the existence of waiver in similar circumstances. 12 In Martin, cosmetology students brought a putative class and collective action against their 13 cosmetology school, alleging that the school’s requirement that the students perform unpaid labor 14 to graduate violated state labor laws and the Fair Labor Standards Act. Martin, 829 F.3d at 1120. 15 Approximately seventeen months after the complaint was filed, and after receiving a number of 16 adverse rulings from the court, the defendants filed a motion to compel arbitration. Id. at 1122. 17 The Ninth Circuit held that the district court did not abuse its discretion in finding that the 18 defendants had waived their right to arbitrate. The defendants acted inconsistently with their 19 arbitration right when they spent seventeen months litigating the case, filed a motion to dismiss on 20 a key merits issue, entered into a protective order, answered discovery, and told the district judge 21 that they likely were better off in federal court than in arbitration. Id. at 1126. The Ninth Circuit 22 found that the plaintiffs were prejudiced by the defendants’ conduct, holding that “[w]hen a party 23 has expended considerable time and money due to the opposing party’s failure to timely move for 24 arbitration and is then deprived of the benefits for which it has paid by a belated motion to compel, 25 the party is indeed prejudiced.” Id. at 1127. 26 In Newirth by & through Newirth v. Aegis Senior Communities, LLC, 931 F.3d 935, 938 27 (9th Cir. 2019), the operator of senior living communities was sued by residents alleging fraud 1 dismiss, but then withdrew those motions. Id. at 938-39. The parties stipulated to the filing of a 2 second amended complaint and the defendant moved to dismiss that pleading. Id. at 939. Over 3 the next eleven months, while the motion to dismiss was pending, the parties engaged in discovery 4 and settlement negotiations. Id. The district court ultimately denied the motion to dismiss, after 5 which the defendant filed a renewed motion to compel arbitration, approximately a year after 6 withdrawing the initial motion to compel. Id. The Ninth Circuit found that the defendant acted 7 inconsistently with its right to arbitration by litigating the arbitrable claims for two years and filing 8 a renewed motion to compel arbitration only after receiving an adverse ruling. Id. at 942. The 9 plaintiffs were prejudiced, because if the motion to compel had been granted, the plaintiffs would 10 have been forced to relitigate key legal issues on which they already had prevailed. Id. at 944. 11 These cases are factually distinguishable from the present case, in which Health Carousel 12 filed its motion to compel arbitration less than two months after service of the original complaint 13 and less than two weeks after the filing of the operative FAC containing the PAGA claim. See 14 Return of Summons, ECF 12, 13; FAC, ECF 17; Motion to Compel Arb., ECF 19. Health 15 Carousel did not engage in months or years of litigation prior to seeking to compel arbitration, nor 16 did it seek to compel arbitration only after an adverse judicial ruling. 17 The facts of Vesta Corp. v. Amdocs Mgmt. Ltd., No. 3:14-CV-1142-HZ, 2016 WL 18 4541035, at *1 (D. Or. Aug. 31, 2016), are closer to those of the present case. In Vesta, the 19 defendants filed a motion to dismiss certain of the plaintiffs’ allegations as precluded by an 20 arbitration provision in the parties’ memorandum of understanding (“MOU”). In their motion, the 21 defendants urged the district court to determine whether a valid arbitration agreement existed and 22 whether the agreement encompassed the dispute at issue. Id. The district court concluded that the 23 arbitration provision in the MOU did not encompass the dispute. Id. The defendants sought 24 reconsideration, arguing for the first time that the district court did not have jurisdiction to decide 25 the issue of arbitrability. Id. at *2. The district court denied the motion for reconsideration, 26 finding that “[b]y asking this Court to determine whether ‘there is a valid agreement to arbitrate 27 the dispute here,’ Defendants waived their right to send this case to an arbitrator for that 1 Schwendeman argues that this Court likewise should find that Health Carousel waived the 2 right to send the issue of arbitrability to the arbitrator when it asked this Court to determine that 3 the PAGA claim falls within the scope of the Agreement and to dismiss the action on that basis. 4 While Schwendeman’s argument has some superficial appeal, she ignores a key difference 5 between Vesta and the present case, which is that the Vesta the defendants waited until they had 6 lost their motion to dismiss before attempting to enforce the delegation clause of the arbitration 7 agreement. In contrast, Health Carousel raised the delegation clause in the briefing on its motion. 8 In re Checking Account Overdraft Litigation, 754 F.3d 1290 (11th Cir. 2014), is 9 distinguishable from the present case for the same reason. Johnson, a bank customer, sued 10 KeyBank for overcharging in overdraft fees. “KeyBank asked the district court to take up the 11 threshold question of arbitrability and to compel arbitration of Johnson’s claim in accordance with 12 his deposit agreement.” Id. at 1292. “The district court decided the gateway issue, but not in 13 KeyBank’s favor: it refused to enforce the arbitration agreement as unconscionable.” Id. Only 14 after the case was remanded to the district court for reconsideration in light of recent precedent did 15 KeyBank for the first time point to the delegation clause, arguing that the district court should 16 have reserved the gateway issue for the arbitrator. Id. The Eleventh Circuit concluded that 17 KeyBank waived enforcement of the delegation clause by raising it only after the issuance of an 18 unfavorable unconscionability ruling. Id. Here, of course, Health Carousel asserted the delegation 19 clause in its reply brief, during the litigation of its motion to compel arbitration and dismiss the 20 case. 21 None of the authorities cited by Schwendeman persuade the Court that Health Carousel has 22 waived its right to enforce the delegation clause regarding arbitrability issues. Health Carousel 23 filed its motion to compel arbitration shortly after being served with the complaint and less than 24 two weeks after the filing of the operative FAC containing the PAGA claim. Health Carousel 25 asserted the delegation clause as soon as Schwendeman argued specific contract interpretation 26 issues in opposition to the motion. While the Court agrees that a better approach would have been 27 for Health Carousel to raise the delegation clause in its opening brief, none of the cited authorities 1 Schwendeman argues Health Carousel’s failure to raise the delegation clause in its opening 2 brief caused her to litigate issues relating to the scope of the arbitration agreement in this forum, 3 and that she will be prejudiced if she is forced to relitigate those issues in the arbitration forum. 4 This argument lacks force. Schwendeman chose to file this action as a class and collective action 5 in the district court despite clear language in the Agreement barring such suit, and she persisted in 6 litigating her PAGA claim here despite the breadth of the Agreement and Ninth Circuit authority 7 holding that arbitration of a PAGA claim may be compelled based on language similar to that in 8 the Agreement. See Valdez v. Terminix Int’l Co. Ltd. P’ship, 681 F. App’x 592, 594 (9th Cir. 9 2017). “To prove prejudice, plaintiffs must show more than ‘self-inflicted’ wounds that they 10 incurred as a direct result of suing in federal court contrary to the provisions of an arbitration 11 agreement.” Martin, 829 F.3d at 1126. “[I]n order to establish prejudice, the plaintiffs must show 12 that, as a result of the defendants having delayed seeking arbitration, they have incurred costs that 13 they would not otherwise have incurred, that they would be forced to relitigate an issue on the 14 merits on which they have already prevailed in court, or that the defendants have received an 15 advantage from litigating in federal court that they would not have received in arbitration.” Id. 16 (citations omitted). Schwendeman has not established prejudice of that type, except perhaps 17 insofar as she may end up repeating contract interpretation arguments to the arbitrator that she 18 made here. However, she may well be able to utilize the same research and briefing before the 19 arbitrator, thus expending minimal additional resources. Moreover, she has not demonstrated that 20 any prejudice suffered by having to repeat her arguments would be so substantial as to meet her 21 “heavy burden” of establishing waiver on this record. 22 Accordingly, the Court concludes that the issue of Schwendeman’s authority to agree to 23 arbitrate the PAGA claim properly is addressed to the undersigned, but that the arbitrability of the 24 PAGA claim otherwise has been delegated to the arbitrator, and Health Carousel has not waived 25 such delegation. 26 C. Schwendeman’s Authority to Agree to Arbitrate PAGA Claim 27 Under PAGA, “an employee may seek civil penalties for Labor Code violations committed 1 action against her employer.” ZB, 8 Cal. 5th at 181 (2019) (citing Cal. Lab. Code § 2699(a)). 2 Under California Labor Code § 2699(a), any provision of the California Labor Code that provides 3 for assessment of a civil penalty by the Labor and Workforce Development Agency (“LWDA”) 4 may, as an alternative, be enforced by means of “a civil action brought by an aggrieved employee 5 on behalf of himself or herself and other current or former employees.” Cal. Lab. Code § 2699(a). 6 That statute defines “aggrieved employee” as “any person who was employed by the alleged 7 violator and against whom one or more of the alleged violations was committed.” Cal. Lab. Code 8 § 2699(c). In bringing a representative action under PAGA, an aggrieved employee acts “as the 9 proxy or agent of the state’s labor law enforcement agencies.” Arias v. Superior Court, 46 Cal. 10 4th 969, 986 (2009). Civil penalties recovered under PAGA are distributed between the aggrieved 11 employees (25%) and the LWDA (75%). Cal. Labor Code § 2699(i). 12 Health Carousel cites Ninth Circuit authority that “an individual employee, acting as an 13 agent for the government, can agree to pursue a PAGA claim in arbitration.” Valdez, 681 F. 14 App’x at 594; see also Wulfe v. Valero Ref. Co.-Cal., 641 Fed. Appx. 758, 760 (9th Cir. 2016) 15 (“The district court did not err in compelling arbitration of Wulfe’s [PAGA] claim.”). In Valdez, 16 an employer appealed the district court’s order denying its motion to dismiss or compel arbitration 17 of the plaintiff’s representative PAGA claim. Valdez, 681 F. App’x at 593. The district court had 18 “reasoned that a PAGA claim belongs to the state, and the state has not waived the judicial forum, 19 even where a private employee signs an employment contract requiring that PAGA claims be 20 pursued in arbitration.” Id. at 594 (internal quotation marks omitted). The Ninth Circuit found 21 that “[t]he district court’s holding on this point is incorrect,” pointing out that “Iskanian and 22 Sakkab clearly contemplate that an individual employee can pursue a PAGA claim in arbitration, 23 and thus that individual employees can bind the state to an arbitral forum.” Id. The Ninth Circuit 24 noted that under California law, judgment in a PAGA representative action is binding not only on 25 the named plaintiff but also on governmental agencies and other aggrieved employees. Id. Thus, 26 the Ninth Circuit reasoned, “[e]mployees can bind government agencies because they represent 27 the same legal right and interest as the government in PAGA proceedings.” Id. (internal quotation 1 Schwendeman cites California appellate authority reaching the opposite conclusion. See 2 Correia v. NB Baker Elec., Inc., 32 Cal. App. 5th 602, 621-22 (Cal. Ct. App. 2019). In Correia, 3 the state appellate court reasoned that that “[w]ithout the state’s consent, a predispute agreement 4 between an employee and an employer cannot be the basis for compelling arbitration of a 5 representative PAGA claim because the state is the owner of the claim and the real party in 6 interest, and the state was not a party to the arbitration agreement.” Id. at 622. The court 7 suggested that the employee’s agreement to arbitrate may be enforceable once the state has 8 provided the employee with implicit or explicit authority to bring the PAGA claim. Id. Before 9 that time, however, the court concluded that “the employee has no authority or authorization to 10 waive the state’s rights to bring the state’s claims in court.” Id. 11 The Correia court acknowledged the contrary approach taken by the Ninth Circuit, but it 12 found those cases to be unpersuasive. Addressing Valdez in particular, the Correia court observed 13 that the Ninth Circuit “focused on the employee’s role as the state's proxy (with the ability to bind 14 the state and other employees) to support a rule that the employee’s signature on a predispute 15 arbitration agreement waives the employee’s rights to bring the state’s enforcement claims in 16 court.” Correia, 32 Cal. App. 5th at 623-24. In the Correia court’s view, the Ninth Circuit’s 17 reasoning is flawed, because “the plaintiff does not assume this proxy role until it is an ‘aggrieved 18 employee,’” and the plaintiff is not “aggrieved” prior to a dispute arising. Correia, 32 Cal. App. 19 5th at 624. In the predispute period, the Correia court opined, “he or she is signing the agreement 20 solely on his or her own behalf and not on behalf of the state or any other third party.” Id. The 21 court acknowledged that Sakkab assumed that PAGA claims can be arbitrated, but it gave Sakkab 22 little weight based on the fact that Sakkab did not expressly consider “whether a private party can 23 waive the state’s right to litigate its PAGA claims in court before any dispute has arisen.” Id. 24 It is clear from the record that Schwendeman had not yet begun her first assignment when 25 she signed the Agreement. Schwendeman signed the Agreement on July 6, 2017, and she began 26 work the following month, in August 2017. See Dalton Decl. ¶¶ 3-4, ECF 19-1. Given this 27 timeline, Schwendeman argues that under Correia she was not an aggrieved employee with 1 Schwendeman argues that Correia controls, because the Court must apply California law 2 to determine whether a valid arbitration agreement exists. “In determining whether a valid 3 arbitration agreement exists, federal courts apply ordinary state-law principles that govern the 4 formation of contracts.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) 5 (internal quotation marks and citation omitted). “Federal courts sitting in diversity look to the law 6 of the forum state – here, California – when making choice of law determinations.”1 Id. In 7 California, absent a choice of law by the parties, a contract is interpreted under the law of the place 8 of performance or, if it does not indicate the place of performance, under the law of the place of 9 creation. Welles v. Turner Entm’t Co., 503 F.3d 728, 738 (9th Cir. 2007). Schwendeman’s 10 employment was performed in California. See FAC ¶ 4 (“Plaintiff is a citizen of Florida who was 11 employed as a non-exempt hourly employee of Health Carousel, LLC and Health Carousel Travel 12 Network, LLC in Palo Alto, California from August 2017 to February 2018.”). Accordingly, 13 California principles governing formation of contracts apply. 14 This does not necessarily mean that this Court must apply Correia, however. “When 15 interpreting state law, federal courts are bound by decisions of the state’s highest court.” Vestar 16 Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 958, 960 (9th Cir. 2001) (citation omitted). “In 17 the absence of such a decision, a federal court must predict how the highest state court would 18 decide the issue using intermediate appellate court decisions, decisions from other jurisdictions, 19 statutes, treatises, and restatements as guidance.” Id. “However, where there is no convincing 20 evidence that the state supreme court would decide differently, a federal court is obligated to 21 follow the decisions of the state’s intermediate appellate courts.” Id. 22 The California Supreme Court has not addressed whether a predispute agreement between 23 an employee and an employer can be the basis for compelling arbitration of a representative 24 PAGA claim. This Court therefore must predict how the California Supreme Court would resolve 25 that issue. In making that prediction, the Court must follow Correia absent convincing evidence 26 that the California Supreme Court would decide the issue differently. This Court finds convincing 27 1 evidence in the reasoning of the California Supreme Court’s decision in Iskanian v. CLS 2 Transportation Los Angeles, LLC, 59 Cal. 4th 348, 388 (2014), and the Ninth Circuit’s decision in 3 Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015). 4 In Iskanian, the California Supreme Court held that a predispute employment agreement to 5 waive representative PAGA claims “is contrary to public policy and unenforceable as a matter of 6 state law.” Iskanian, 59 Cal. 4th at 384. In reaching that conclusion, the Iskanian court observed 7 that PAGA was enacted to address Labor Code violations, both by imposing civil penalties for 8 such violations and by alleviating the “shortage of government resources to pursue enforcement” 9 by permitting PAGA actions to be brought by individual employees. Id. at 379. The court 10 emphasized that “an aggrieved employee’s action under the PAGA functions as a substitute for an 11 action brought by the government itself” and it therefore “is fundamentally a law enforcement 12 action.” Id. at 381 (internal quotation marks, citations, and alterations omitted). The court 13 determined that “agreements requiring the waiver of PAGA rights would harm the state’s interests 14 in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter 15 violations.” Id. at 383. The Iskanian court left open the question of whether the employee’s 16 representative PAGA claim would proceed in arbitration or in the court, indicating that the parties 17 should address that issue on remand. Id. at 392. 18 In Sakkab, the Ninth Circuit considered whether the Iskanian rule barring waivers of 19 representative PAGA claims is preempted by the FAA. See Sakkab, 803 F.3d at 427. The Sakkab 20 court noted that the FAA was enacted “in response to widespread judicial hostility to arbitration 21 agreements.” Sakkab, 803 F.3d at 431 (internal quotation marks and citation omitted). Under the 22 FAA’s “savings clause,” arbitration agreements may be invalidated by generally applicable 23 contract defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only 24 to arbitration. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). Moreover, even a 25 state law rule that is “generally applicable” may be preempted if it conflicts with the FAA’s 26 objectives. Id. at 343. The Ninth Circuit concluded that the Iskanian rule is ‘generally applicable’ 27 because it “bars any waiver of PAGA claims, regardless of whether the waiver appears in an 1 The Sakkab court also concluded that the Iskanian rule does not conflict with the FAA’s 2 objectives, because “[t]he Iskanian rule prohibiting waiver of representative PAGA claims does 3 not diminish parties’ freedom to select informal arbitration procedures.” Sakkab, 803 F.3d at 436. 4 The Ninth Circuit engaged in an extensive discussion regarding the issues attendant on arbitration 5 of a representative PAGA claim, which the court characterized as “a statutory action for penalties 6 brought as a proxy for the state.” Id. at 435-39. The court found that those issues did not provide 7 a basis for finding that arbitration is not a workable means for resolving PAGA claims. Id. The 8 Ninth Circuit summarized its ruling as follows: “In sum, the Iskanian rule does not conflict with 9 the FAA, because it leaves parties free to adopt the kinds of informal procedures normally 10 available in arbitration. It only prohibits them from opting out of the central feature of the 11 PAGA’s private enforcement scheme – the right to act as a private attorney general to recover the 12 full measure of penalties the state could recover.” Id. at 439. 13 Nothing in Sakkab suggests that an employee’s predispute agreement to arbitrate a PAGA 14 claim is not binding. Indeed, the entire basis of Sakkab’s determination that Iskanian does not run 15 afoul of the FAA would be eviscerated by such a ruling. Arbitration agreements such as the one at 16 issue here commonly are executed at the start of employment, before any dispute has arisen and 17 thus before the employee is “aggrieved” under the reasoning of Correia. Application of Correia 18 thus would exempt most, if not all, PAGA claims from arbitration in the employment context. 19 This Court is not persuaded that the California Supreme Court would adopt Correia under these 20 circumstances, when doing so would call into question the validity of the Iskanian rule. 21 This Court therefore concludes, consistent with the Ninth Circuit’s rulings in Valdez and 22 Wulfe, that Schwendeman had authority to agree to arbitration of the PAGA claim. Whether the 23 PAGA claim falls within the scope of the arbitration agreement is a question for the arbitrator, for 24 the reasons discussed above. 25 D. Dismissal versus Stay Pending Arbitration 26 Health Carousel asks the Court to compel arbitration of the PAGA claim and dismiss this 27 action. Because it is yet to be decided whether the PAGA claim is arbitrable under the terms of 1 The Clerk shall administratively close the action during the pendency of the arbitration. If it is 2 || determined by the arbitrator that the PAGA claim is not subject to arbitration, Schwendeman may 3 || file a request to reopen the action and lift the stay, and the Court will do so immediately. 4 IV. ORDER 5 (1) The motion to compel arbitration is GRANTED. As discussed herein, the 6 arbitrability of the PAGA claim shall be decided by the arbitrator. 7 (2) The action is STAYED pending arbitration. The Clerk shall administratively close 8 the action. If the arbitrator determines that the PAGA claim is not subject to 9 arbitration, Schwendeman may file a request to reopen the action and lift the stay. 10 11 Dated: November 20, 2019 han tn 2 / Con ( □□ | Me. BETH LABSON FREEMAN 13 United States District Judge
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